How not to run a club: Peter Hook on the true story of the Haçienda

It's 2009 and the Haçienda has never been more well-known. It still doesn't make any money, though. This year we celebrate 21 years of acid house; we are holding Haçienda nights all across the UK and now have merchandise deals for CDs, T-shirts, shoes, postcards, posters, a bespoke bike frame, even a fine-art project with Ben Kelly. It looks as though our manager, Rob Gretton, was right about the Haçienda, just as he was at Ian Curtis's wake when he told us, "Joy Division will be huge in 10 years' time". It wasn't much solace at that particular moment but he was spot on: Joy Division were huge in 10 years, also in 20 and 30 years. Still are.

But I need to tell you the story first, don't I? I need to tell you how the Haçienda changed the shape of clubbing in England. Where it all went wrong, and how what should have been a dream come true became a cautionary tale. Because while there's a lot about the Haçienda that shouldn't be glorified – the gangsters, the drugs, the violence, the cops – there's also the stuff of legend: the fact that it was a superclub before the term had even been invented; that it was the birthplace of acid house in the north and the home of Madchester, two musical movements that went round the world; that it was the scene of too many great nights and gigs to recall – not that you were in any state to do so.

When the Haçienda opened, Factory and New Order had no experience running a commercial enterprise; we just invested our money and trusted the staff, mostly our friends, to sort everything out. Bad idea. Your friends are your friends not because they're good at business. But we learnt that the hard way. As my accountant likes to tell me, I won't appreciate how much cash the Haçienda lost until I stop earning money. "Then," he says, "it'll hit you like a juggernaut." We once worked out that from the time it opened in 1982 to when it closed in 1997, each punter through the door cost us £10. We wasted that much through bad management and sheer stupidity. As far was as we were concerned, it was history we were making, not money. But if I'm ever skint, I'll walk around Manchester, asking everyone to give me my tenner back.

The early days

I'd met Bernard Sumner at school. Back then we were best friends and would be for years. When we left school I worked in the Manchester Town Hall, which was where I first DJ-ed: I played records at the Town Hall conveyancing department's 1975 Christmas party. Barney and I used to go to all the regular clubs in Manchester, where the traditional crowd was girls in high heels and boys in white shirts and jackets, a pretty formal dress code and not really what we were about. By 1977 punk had happened but the shows were isolated events and once the concert was over, it was back to normal. People like us still didn't have anywhere to go, dressed how we wanted.

After seeing the Sex Pistols perform at the Lesser Free Trade Hall in 1976, Barney and I formed a band. First we were called Warsaw, then Joy Division. When the line-up settled, it was me on bass, him on guitar and Ian Curtis as our lead singer. After one or two drumming turkeys had been and gone, we found Steve Morris. Now, because we were in a group, we were able to go to a lot of places and perform for fun, which was great for us of course, but still the Manchester club scene stayed unhealthy. My favourite spot back then was Rafters. Barney, Terry and I used to go there to see gigs promoted by Music Force, which was run by Martin Hannett, who played bass in a band called Greasy Bear. He shared a booking agency in Manchester with Alan Wise. Together with Alan Erasmus (a local actor and band manager) they put shows on all over the city. That's how Martin started his career, before he began producing records for Joy Division. Next, Alan Erasmus, along with the Granada TV presenter Tony Wilson, began hosting club nights they called The Factory, where Joy Division also performed. It was the two Alans, along with Tony, John Brierley (owner of Cargo Studios in Rochdale) and the designer Peter Saville, who launched Factory, while Rob Gretton, who DJ-ed at Rafters on most nights, became our manager. It was a very small, insular community.

Joy Division pretty quickly became quite successful and we earned enough to quit our day jobs. By early 1980, plans were afoot for us to tour the United States. By now, we'd released one album, Unknown Pleasures, with another one, Closer, already recorded. All that came to an end when Ian killed himself, right before we were to fly to America. Personally, of course, we were heartbroken. Professionally, we were back to square one.

Barney, Steve and I decided to keep going. We called ourselves New Order. By 1981, we were touring and visiting great clubs in amazing cities. We liked the sleaziness of the places we discovered in New York, like Hurrah, Danceteria, Tier 3, and Eden. In Manhattan at the time, you'd find these steamy, sweaty, dark, low-end clubs, like the Fun House, a black-painted box that just felt vibey, and then you'd go into ritzy places with art installations, like Studio 54 and Area.

But whenever we returned, it was to a Manchester scene that was still pretty stagnant. So it was, then, that Tony and Rob came up with the idea to open their own place. At first New Order didn't really listen. We were concentrating on making music. Rob insisted that, as Manchester had treated us well, we should give something back. (All very altruistic, of course, but we didn't realise that he meant to give the city everything we had, financially and emotionally). He told us the club would cost around £70,000. Being a small label with limited overheads, Factory possessed some capital, which could be invested – money from the sale of Joy Division records, presumably – so the label would pay half. The other half would be paid by New Order and would be tax-deductible as an investment. We couldn't believe it: £35,000. We were musicians living on £20 per week.

Rob and Tony wanted it run like a seven-days-a-week members' club. Furthermore, it could be somewhere you could go to wearing whatever you liked. No dress code. Now all we needed was a name, which came from Tony. He'd got it from Leaving the 20th Century: The Incomplete Work of the Situationist International, a book published in 1974 that became something of an underground classic. It featured essays that said society had become boring, and that the only way to put everyone back on track was to create jarring "situations" by combining all types of art, including architecture. Tony picked up on the phrase, "the haçienda must be built," which became his call to action. To that was added a cedilla, legend has it so that the "c" and the "i" looked more like a 51, which was to be the club's catalogue number – and we had our name.

The club opens

Gradually, the affairs of New Order, the Haçienda, and Factory became entwined with each other on every conceivable level, and this happened without any of us in New Order noticing. We stayed on the periphery of it all – which was odd, not to mention foolhardy, considering the amount of money we had at stake. Think about it: the Haçienda cost £344,000 to build in 1981. That's equivalent to about £3m now. If you spent three million on a club today, people would think you were potty. As it was, it felt like someone else's money.

Somebody once asked me who I thought was responsible for the ultimate demise of the Haçienda. The answer at the time was Ben Kelly. These days, of course, I realise that none of us were blameless. But it was Ben who – appropriately for an architect – laid the foundations. Everything he did for us – starting with the Haçienda then later our bar, Dry; the Factory Records office building; and even Tony Wilson's own flat – came in massively over-budget. By the time it was finished, the Haçienda was 5,000 per cent over-designed for its audience. On walking in, the initial impression was always, "wow", but at the end of the day concert-goers don't care about the architectural style of venues, they just want to see bands play without girders in the way and shit sound. Later, during the acid house era, people enjoyed themselves just as much dancing in shitholes which cost nothing as they did inside the Haçienda, which cost a fortune. But Ben certainly came up with a unique, iconic design that has stood the test of time. It is still a landmark, a classic.

"But there's no back room," said Richard Boon, Buzzcocks manager and a promoter who supported us as Joy Division. He was right. Unlike other clubs, the Haçienda didn't have a VIP area. During our heyday it was part of the club's appeal. No VIP area meant celebrities had to mix with the regular punters instead of hiding behind a velvet rope. You could go into the Haçienda and stand at the bar next to Shaun Ryder, find yourself dancing alongside Ian Brown. When it first opened it just felt like another cock-up to go along with the DJ booth, which initially was in an amp room by the side of the stage. It had a tiny window, which meant DJs couldn't see the dancefloor unless they stood on a crate. Plus, the decks were at the back of the booth, opposite the window, so DJs would have to turn their back on the window to put records on.

I went to the opening with Iris, my girlfriend at the time. Hewan Clarke was the DJ. The cult of the DJ hadn't begun yet and nobody paid any attention to what records he was playing. Bernard Manning was the compere for the evening. Rob and Tony thought it was ironic, having him do a spot on the opening night. To them he represented the sort of old-school, working-man's-club environment the Haçienda meant to replace. The crowd were bemused, quite rightly. As for Manning, he took one look at the Haçienda and sussed out it was run by idiots. "Stick to your day jobs, lads, 'cause you're not cut out for clubs. Give up now while you've got the chance."

From what he'd seen that night, Manning thought it was doomed. Nobody in the audience could hear what he said over the PA because the sound system and acoustics were so terrible. A few months later, when Chris Hewitt from Tractor Music took down the original sound system, he discovered that of the 20 speakers only two worked; the other 18 had blown out immediately. It turned out that the Haçienda, one of the biggest clubs of its time, had been running on what amounted to a public address system. The night after the opening, Cabaret Voltaire played, attracting an audience of around 75. It marked the beginning of the lean years for the Haçienda, a time when the club was quite simply too far ahead of its time.

By 1983, the only thing keeping the Haçienda going was the success of Joy Division and New Order. We were earning so much for Factory that they could afford to be complacent, at least for a while. Meanwhile, the club was losing an average of £10,000 a month. One spring day, my mate Andy Fisher (a promoter) rang me, and said, "I can always tell the Haçienda bar staff when they're walking home from the club."

"How?" I was puzzled. They looked just like any other barmen. It wasn't like we had a dress code. "They're always carrying a crate of beer."

Suddenly it all made sense. Whenever there was a stock-take, everything was missing and nobody could figure out what happened to the beer. It got to the stage where I was sick of asking, "Where have all the lights gone?" It turned out that one of the lighting guys, a disgraced ex-roadie who had somehow wormed his way in with Rob was now running his own lighting company out of his South Manchester flat: renting out our bleeding lights. When we found out, the lads went over and got it all back off him and sent him packing with a good clip round the ear. Years later he came back to the club, and spoke to our receptionist, Fiona Allen (who went on to find fame in Smack the Pony): "Can I come in?"

She looked at him, gobsmacked – couldn't believe the sheer nerve of the bloke. "Damien," she called to the head doorman, "throw him in the canal."

So he did. Picked him up and chucked him in the canal.

The great gigs

At least we were using the club to promote Factory's bands, right? Wrong. The Haçienda was rarely used as a platform for Factory bands. Tony used it as a bigger and better version of the original Factory club in Hulme, booking arty bands. We'd need a nearly full house just to cover expenses yet put on acts who could only attract 400 people. That kind of recklessness shows how little planning went into it, but the idea was to champion groups that we loved, which – at the time – tended to be proper indie British post-punk bands.

1983 was the year Happy Mondays first played at the Haçienda, in one of the regular Battle of the Bands competitions. It was their second-ever performance, it was a complete shambles, and they came last in the competition. However, the bassist, Paul Ryder, was my postman and he always slipped demo tapes through my door. It was when I got a tape of "The Egg" that I passed one along to Tony.

This was the year The Smiths broke and they played the Haçienda three times, the first supporting 52nd Street in February. They were back, headlining, in July when the stage was strewn with flowers. By the time the Smiths returned to the Haçienda in November, the place was full of customers (this and the New Order gigs were the only times the Haçienda sold out in its first two years) and full of flowers, producing a memorable atmosphere for what would come to be regarded as one of the club's best-ever gigs. Wilson told writer Johnny Rogan: "It was one of the great moments in the Haçienda's history. There have been certain great gigs in Manchester's history: The Eagles at the Palace, Lou Reed at the Free Trade Hall, Joy Division at the Derby Hall, Bury. These are concerts you always remember, and The Smiths at the Haçienda was one of the great gigs."

I like The Fall. Always have, and they played at the club loads of times. I remember when OMD played, they sounded great because they had a huge PA and blasted the bad acoustics out of the place. Their lights were stunning, too. John Cale comes to mind. One of my heroes. His evening at the Haçienda was a fantastic performance, but just 40 people turned up. And most of them talked all the way through the show. Cale played piano and acoustic guitar, and the music was very quiet. All of the chatter drove me insane. Marc Riley from The Fall was as incensed as I was and we walked through the crowd, poking them telling them to shut up. Cale lived in Manchester with Nico for a while in the 1990s. Nico herself played her last gig at the Haçienda, in 1986. At this point she was living in Manchester with the promoter Alan Wise. She was a very grumpy and miserable lady. Hardly surprising, really – she'd gone from Jim Morrison in LA to a bedsit in Prestwich.

The golden period of Haçienda gigs drew to an end in 1986. Competing venues like the Free Trade Hall and the Apollo offered better deals and the bands were defecting. There's loyalty for you. It was decided that much more cost-effective were DJ-only nights. This decision would help to shape not just the club's future direction, but also the direction of UK club culture as a whole.

The end

In the end it wasn't the gangs, the drugs or the violence that brought down the Haçienda; it was a bunch of people doing sums. There you go: the calculator is mightier than the gun. Heartbreaking or not, it was my escape route and I took it. "I can't handle it any more." I told Rob. "I'm finished. I'm not putting any more money in." He was bitterly upset. "Judas. You betrayed me." He yelled. "You stabbed me in the back."

The last night of the Haçienda was Saturday 28 June 1997. Dave Haslam was DJ-ing, and had no idea it was to be the last-ever night. The club was full and there was, for once, no violence.

Essentially we were too idealistic. We didn't want to run the Haçienda as a business – we wanted a playground for ourselves and our friends. We wanted everyone to enjoy it with us, so we treated it like a big party, the best Manchester has ever seen.

© Peter Hook 2009. From 'The Haçienda: How Not to Run a Club', by Peter Hook, published by Simon & Schuster at £18.99

How the Haçienda set Madonna on the road to fame

As 1984 began, the Haçienda had an enviable line-up of DJ talent, while still retaining its cutting-edge, stylish reputation and the enduring kudos of its association with Factory. The perfect place, then, for Channel 4 to film a special episode of The Tube based around a rising New York-based singer, the girlfriend of famous New York DJ Mark Kamins. You know the one...

Madonna appeared as a personal favour to Kamins, a friend of ours who managed her. He asked us if we could get her a gig, and because there was an episode of the The Tube being broadcast from the Haçienda, Rob decided to put her on. You can see it now on YouTube.

She lip-synced to two songs during the afternoon's filming. So there you go, Madonna's first appearance on British TV was all down to us: it was an inside job. And once again we were ahead of the trends. We already knew of her through her association with Kamins, Jellybean, and others; she had no profile in the UK at all. That appearance at the Haçienda changed it all for her. The first step on her journey of world domination, God forgive us.

Rob and I watched Madonna and were impressed. "We should get her back here afterwards, to perform tonight," he said, so we walked to the dressing room, where we found her with her backing dancers.

Rob said: "Uh, hello. I'm Rob Gretton. I manage the club. Do you want to play later tonight? We'll give you 50 quid."

She looked at him.

"Fuck off," she drawled in her whiny Noo Yawk accent before turning away.

The day included a performance by the Factory All-Stars but also on the bill were the Jazz Defektors. They'd been due to perform for a TV audience but when the day came Madonna's people insisted that she lip-synced to two songs, rather than one, meaning an act had to be cut.

There's a postscript to the event. Years after, Tony Wilson found himself sitting opposite Madonna at dinner.

He said: "I eventually plucked up the courage to look across the table to Madonna and ask, 'are you aware that the first place you appeared outside of New York was our club in Manchester?'"

"She gave me an ice-cold stare and said, 'my memory seems to have wiped that'." Miaow.